BY EDDIE OSIFELO
SOLOMON Islands is witnessing a remarkable economic recovery, largely driven by the vibrant construction sector, boosted by the reopening of borders and major infrastructure projects, including the 2023 Pacific Games.
Minister of Finance and Treasury, Harry Kuma, affirmed this encouraging trend during his address while presenting the 2024 Appropriation Bill in Parliament on Tuesday.
Kuma acknowledged that while the agriculture and service sectors are expected to exhibit slight growth, the pace of their recovery remains relatively slow. He noted that challenges in external demand for logs and copra are being balanced by stronger performances in other agricultural products like palm oil and cocoa. Additionally, increased fishing activities, facilitated by favorable weather conditions, have contributed to this sector’s resilience.
The fishing sector is projected to expand by 3.4% in 2023, aligning with previous forecasts, while the industrial sector is anticipated to lead the recovery, with an estimated growth rate of approximately 0.6%. This growth is largely attributed to the construction, mining, and manufacturing activities. The service and business sectors are also expected to benefit from improved domestic activities and a recovery in domestic demand, with an upwardly revised forecast of around 2.3% for 2023.
However, some sectors, including logging, manufacturing, and tourism, are anticipated to experience a slowdown. Logging exports are expected to reach a more sustainable level, and the tourism sector is on a path to recovery but at a slower pace.
Kuma highlighted that economic data as of the end of 2022 confirmed that the Solomon Islands’ economy is still recuperating from both global and domestic shocks. Consequently, the current account deficit is projected to be around 17% of GDP for 2023, which is 13% higher than in 2022. The current account deficit is expected to widen further in 2024, primarily due to the trade balance’s drop as a percentage of GDP by 16%, driven by anticipated lower logging exports.
Despite these conservative projections, Kuma shared data from the Central Bank of Solomon Islands for the June 2023 quarter, indicating improvements in the country’s overall balance of payments. A provisional surplus of $152 million was recorded during the quarter, reflecting better performance in the current account, coupled with increased surpluses in the capital and financial accounts.
In terms of international trade, the export of goods is forecasted to grow by 9% in 2023 and by 3% from 2024 to 2028. This growth is attributed to expected improvements in non-log exports throughout the year, even though it remains below pre-COVID levels. Total imports of goods are projected to grow by 2% in 2023, 1% in 2024, and 5% from 2025 to 2028.
Furthermore, Kuma revealed that the latest trade data up to June 2023 from the Central Bank showed an improvement in the trade balance. The trade deficit narrowed to $44 million at the end of June 2023, compared to a $269 million trade deficit recorded in the first quarter. This positive development was the result of a 9% increase in exports against a 12% decline in imports in the second quarter of 2023. Trade in services also exhibited signs of improvement, with the deficit decreasing from $254 million to $218 million over the second quarter.
Kuma also highlighted that the level of foreign reserves increased by 2% to $5.671 billion in August 2023. These reserves are sufficient to cover 11.5 months of imports of goods and services, exceeding the IMF’s recommended sustainable level of six months of import cover.
Regarding inflation, Kuma reported that the annual inflation rate, as measured by the National Consumer Price Index (CPI), has marginally risen by 0.9% to 119.9 in July 2023, compared to 3.5% in July 2022. The average inflation rate for 2023 is projected to range from 2-5%, primarily due to rising fuel and food prices stemming from the ongoing Russia-Ukraine conflict and disrupted supply chains. Inflation is expected to be 3-4% in 2024.
Key indicators from the Central Bank have shown that monetary conditions have moderated due to a favorable balance of payments and positive private sector lending during the second half of 2023. Net domestic credit has declined by 6%, while credit to the private sector recorded a 2% growth to $2,719 million. This growth, particularly in personal loans, distribution, construction, and transportation, reflects the economy’s recovery and is welcomed as it promotes economic activities.
Solomon Islands’ evolving economic landscape suggests a promising trajectory of growth, with the construction sector playing a pivotal role in leading the recovery. While challenges persist, the nation’s resilience and diversification efforts are contributing to a more robust and balanced economic outlook.
